Present economic uncertainty will have a significant effect on startups raising their first Angel or Venture Capital rounds. The primary reason is that sales cycles for consumer and business products and services are now going to be extended; and the sales cycle extension means more cash, and the management of that cash.
The VCs still have their funds so there is no shortage of money, but their tendencies will change:
- VC management will now have to spend more time with their portfolio companies helping them navigate the current recessionary environment, thus less time will be available prospecting for new deals, and evaluating them
- More fund money will go to supporting current portfolio companies rather than investing in new ones
Angels, on the other hand, will have seen their net worth drop and/or will take a more conservative approach to their portfolio management. And, unlike VCs, they don’t have to invest. They will also be concerned about:
- The increased difficulty of a startup getting their first VC round
- How much extra money it might take to get to a milestone that is more compelling than ever to raise follow-on funding
So what’s a startup to do:
- Recognize that you are going to have to meet higher standards in the all normal things (validation, customers, need, value proposition, management, competitiveness and sustainability ……)
- Get an update on how your valuation may have changed (changing fear to greed has a price)
- Figure sales cycles will be slower, so look at your plans to do more with less, and definitely try to raise more than you think you need
- Self-fund with your own or family and friends money on a scaled down plan, and get even more creative or imaginative in getting product out and customers in (sounds trite, but those that can do it will be the survivors)
- If you are going for VC or Angel money, then concentrate on new VC funds or new Angel groups where there is a greater likelihood of available funds and time